Stay up to date on my weekly column covering Emerging Market trends, companies, and stories to keep on your radar, from the lens of a VC. By day I’m the General Partner of Predictive VC, investing in early-stage companies like Esusu, Pomelo, Huspy, and Moni across the U.S., Latin America, and EMEA.

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A Unique Window of Opportunity

In our recent Predictive Limited Partner update, I was reflecting on what I believe to be a rare window of opportunity in 2024 for venture in emerging markets. I’ll share why, and a few areas I’m particularly interested in, with you below.

On one hand, venture capital activity in emerging markets dropped dramatically in 2023, particularly relative to developed markets.

• Total funding for Latin American startups in 2023 fell by 60% from 2022 to about $3.1 billion.

• In Africa, funding fell by 39% in 2023 relative to 2022, with $2.1 billion raised in the first half of the year.

• The Middle East saw an approximately 30% drop in venture capital funding between H1 2022 and H1 2023.

Why the drop in venture activity?

Global geopolitical tension in 2022, from the war in Ukraine to international sanctions, paired with rising interest rates, led public markets to correct that year.

Add in a series of instability events in the tech ecosystem in early 2023, like Silicon Valley Bank’s collapse, and a ripple effect swept private markets — first growth, then early-stage. Global venture firms like Tiger Global, Insight, Softbank, and Index pulled back sharply, shifting their attention to U.S. and European safe havens, particularly in areas like A.I.

Emerging markets bore the brunt of this venture pullback; the firms that sparked an emerging market frenzy in 2020-21 were hardly present in these regions in 2022-23.

This funding drought forced startups in emerging markets that had raised seed rounds between 2018 and 2021 to recalibrate aggressively towards scalable revenue and healthy unit economics. Those that overspent, like South African WhereIsMyTransport ($27M raised) and Ghanaian Dash ($86M raised), shut down, while heralded growth stage companies like Africa’s Chipper Cash aggressively cut headcount to survive through 2023.

How did emerging market startups evolve?

The funding drought of 2022-23 forced founders to focus on immediate, sustainable value creation.

Founders have had to iterate quickly towards manageable burn rates, healthier margins, and scalable revenue models. Fintechs have diversified their pricing with a shift to recurring SaaS, away from a reliance on transaction commission.

Naturally, a tighter funding belt has also forced a recalibration of personnel. Many companies have cut back on marketing and business development headcount in favor of product-led growth.

In highly-inflationary markets like Latin America and Africa, startups have attempted to buffer themselves from macro risk by moving upstream from less reliable SMB customers to larger enterprises.

While on the surface, it may seem that not much has changed amongst the 2021-22 vintage of startups in emerging markets, under the hood their infrastructure and team compositions look entirely different.

Excitingly, breakout companies are now emerging from this funding drought with healthy revenue growth and scalable business models.

How will 2024 look in these regions?

I expect tempered economic growth in emerging markets in the first half of 2024.

Growth will be modest in Latin America, where GDP is expected to expand by 2.3% in 2024 after 1.9% growth in 2023. Africa’s economy, meanwhile, is expected to grow by 4% in 2024 after a slowdown to 3.3% in 2023. And in the Middle East, the economy is expected to rebound back to 3.4% following a slowdown to 2.2% in 2023.

Global venture firms will also likely remain on the sidelines in these regions through the first half of 2024, with the stability of the U.S. and European startup markets remaining the more attractive option — most will be focused on finding the next wave of AI opportunities, particularly in areas like LLM tooling and industry-specific use cases.

However, while investor attention is directed elsewhere in 2024, a major tailwind in Latin America, African, and the Middle East is being overlooked: business and consumer digitization is accelerating.

Millions of SMBs and consumers will come online this year.

In Africa and the Middle East, internet adoption is expanding fastest, at a rate of about 80 million more people per month between 2023 and 2027, driven by smartphone proliferation, digital payments, and government subsidies. Meanwhile, in Latin American countries like Colombia, digitization rates are spiking — 63% of the Colombian population consistently used the internet in 2023, up from 38% in 2014.

As SMBs and consumers come online in emerging markets, the startups providing critical services for them that successfully made it through 2022-23 are well positioned.

These companies have slimmed down, nailed their core product offerings, and refined their business models. Breakouts are emerging with healthy revenue growth and unit economics at highly attractive valuations.

We’re talking post-PMF businesses at pre-PMF terms.

They’re now raising to aggressively capture market share.

This disconnect between global investor attention and breakout startups building critical digital services in emerging markets presents a uniquely attractive opportunity for early-stage investors.

Five Ripe Areas of Opportunity

Given this window in 2024 to capture overlooked value in emerging markets at highly attractive valuations, I’ll walk you through five areas of opportunity I’m keen on.

Let’s jump in:

1. Consumer remittance solutions distributed B2B2C

The remittance market is entering an inflection point, with several tailwinds now unlocking a window of opportunity for a category-defining startup to emerge.

Favorable Macro Tailwinds →

At a macro level, remittance tailwinds — particularly in Latin America — continue to accelerate as remittence inflows into LatAm grew by 8% in 2023. Mexico was the second largest recipient of remittance payments globally in 2023 at $67 billion, behind India at $125 billion.

This remittance growth in Mexico is being driven by a strong U.S. labor market, particularly in sectors like construction, along with higher wages.

Incumbent Solutions Aren’t Cutting It →

Meanwhile, existing methods of remittance payments, from traditional bank transfers to cross-border payment platforms like Wise, FIS , or Paypal remain either:

• Too time intensive with multiple day to week long delays

• Too costly with a 1.5% - 5% transaction commission

• Functionality-limited in immediate spending utility for the remittance recipient, across daily necessities like food, utilities, gas, or healthcare

There have been several startup entrants in the remittance market in Latin America over recent years, including Global66 ($20M+ raised), which have reduced steps to sending funds internationally and enabled consumers to hold their balances in foreign currencies like the U.S. dollar.

And there have also been forays into digital wallets launched by governments, like El Salvador, which rolled out a national bitcoin wallet called Chivo in 2021 to reduce fees on over $6 billion in remittances sent annually to the country.

However, these solutions have been unable to capture meaningful market share due to technological inefficiencies, security issues, and fragmented banking ecosystems, which have impeded expansion. Although around half of Salvadorans downloaded Chivo initially, over 60% of those have since stopped using it due to tech issues.

“Don’t even talk to me about Chivo. It’s not secure, so I’m not going near it.” - Carolina Reyes, a merchant in El Palmarcito, El Salvador

Simply put, despite growing demand, it’s been extremely difficult to launch a winning remittance platform across multiple countries in Latin America and Africa due to tech & performance issues and lack of a connected banking infrastructure.

However, there are now viable solutions filling both of these gaps.

Web3 is Unlocking Performance & Cost-Efficiency →

Technologies like programmatic digital wallets and stablecoins are becoming performant and cost-efficient enough to incorporate into remittance products.

Companies like Circle have unlocked innovative ways to send money internationally via frictionless on-ramps into stablecoins like USDC — pegged to the US dollar — with programmable wallets that can be embedded seamlessly into consumer UIs.

Furthermore, previously prohibitive gas fees to execute blockchain transactions can now be offset fully by remittance products, mitigating fees for the end user. And smart contracts can now be developed to securely execute transactions, such as those requiring two or more participants to sign-off.

The result? Instant, cost-free, and highly-secure international transactions.

Connected Banking Infrastructure is Now Maturing, Unlocking Faster Regional Expansion →

Companies like Pomelo, Dock, or Pismo that provide infrastructure for fintechs to launch services in multiple Latin American countries within days have matured over the past several years.

These companies enable vertical applications, such as a novel remittance product, to scale across Latin America while remaining fully compliant with local regulations and connected in real-time to local banks.

More specifically, companies like Pomelo securely integrate local payment rails, like the Pix in Brazil and Dinero Móvil in Mexico, with financial institutions and compliance rails.

Integrating these endpoints together with connected API infrastructure, and Pomelo provides a comprehensive platform for a new wave of startups to launch fintech services in each region in a matter of days rather than months to years.

This connected infrastructure is a key unlock for a remittance unicorn to emerge.

I believe a remittance category leader in Latin America will exhibit a few key characteristics:

• They will leverage best-in-class programmatic wallet and stablecoin technologies

• They will provide post remittance utility for the consumer to pay for essential goods, utilities, healthcare, and entertainment

• They will be distributed primarily by multinational brands rather than direct to consumer marketing

I believe a winner in this category will likely be a B2B2C company, partnering with brands to distribute their solution to their consumers at the point of sale.

Interesting companies to track in this category include Xapo Bank, Stable, and Kura.

2. DeFi infrastructure for the enterprise

High inflation rates and currency volatility in emerging markets like Latin America and Africa have severely impeded financial stability for enterprises in recent years.

Businesses in these regions are in dire need for solutions to retain and enhance the value of their treasury funds. Decentralized finance (DeFi) that leverages existing, foundational Web3 infrastructure offers an answer.

In Latin American countries like Argentina and Venezuela, for instance, inflation has hit record numbers in recent years. In 2023, Argentina saw its annual inflation rate hit 211.4%, the country’s highest number since the early 1990s. Meanwhile, Venezuela’s annual inflation rate dropped slightly to 190%. putting it at number two in the world behind Argentina.

To put this in context, milk costs about $4 in Venezuela at the moment, roughly equivalent to the country’s minimum public sector monthly wage.

Meanwhile, Africa has also seen rising inflation across the continent.

In Nigeria, for example, consumer inflation rose to a 27 year high in January of 2024, hitting 28.92%, driven by a shortage of dollars and a sharp drop in oil inflows — oil accounts for 90% of Nigeria’s export economy.

For businesses in Nigeria — particularly SMBs — this has meant a steep reduction in revenue and treasury value.

Stablecoin Onramps for the Enterprise are Maturing →

Over the past few years, companies like Yellow Card ($56M raised) have emerged to provide simplified onramps into stablecoins like USDC for African businesses. Yellow Card recently partnered with Coinbase to enable Coinbase users in over 20 African countries to buy USDC from their Coinbase wallet and send it through WhatsApp.

With faster, more cost efficient USDC payments unlocked with Coinbase’s recently launched Layer 2 network in Base, which is fully EVM-compatible, Yellow Card is reducing barriers of entry to high-volume USDC transactions for enterprises across Africa.

Another stablecoin entrant in Africa is Ivorypay, backed by Web3 unicorn Alchemy, which aims to enable African SMBs to get paid in stablecoins by customers via a simple Point of Sale checkout integration.

In Latin America, companies like Ripio ($94M+ raised) and Jeeves ($360M+ raised) have been making headway in commercializing stablecoin onramps, wallets, and exchanges for businesses, packaging end-to-end crypto management for businesses into comprehensive platforms.

DeFi is Now Emerging as a Blue Ocean Opportunity →

As foundational Web3 infrastructure goes mainstream in emerging markets, I believe there is now an untapped opportunity for DeFi above these foundations.

Centralized crypto exchanges have been strongly favored in markets like Latin America to date, relative to decentralized exchanges and other DeFi solutions.

In Venezuela, for example, 92.5% of crypto exchange volume has occurred on CEXs, with just 5.6% occurring on DEXs; far below the global average of 44% on DEXs.

Why the discrepancy between CEX and DEX adoption in EM?

I attributed the discrepancy to foundational financial instability and a lack of educational awareness about DeFi.

While DeFi — via popular DEXs like Uniswap or Balancer — has seen strong adoption in stable economies like the United States and Europe, where trading and passive income solutions are in high demand, the adoption of crypto solutions in markets like Latin America and Africa to date have been primarily driven by an immediate demand for storing & retaining value to combat inflation.

Emerging markets have thus far been prioritizing Web3 use cases for value stability rather than value creation.

However, as stablecoin on-ramps, off-ramps, and crypto wallets for the enterprise mature in 2024 in these regions, promoting treasury stability, I predict a demand for DEXs and yield-bearing protocols will emerge.

A startup to watch in this category is Exactly, which has raised $5M to date from firms like Kaszek to provide a decentralized protocol that unlocks fixed interest rates for lenders. Exactly’s larger goal is to closed the gap between DeFi and Latin America’s leading financial institutions.

I expect DeFi winners in emerging markets will partner with foundational stablecoin infrastructure providers like Bitso to distribute quickly across multiple regions.

3. AI-enhanced service providers for SMBs coming online

As mentioned earlier, SMBs are digitizing at a rapid rate in emerging markets. This will unlock a major opportunity in 2024 for modern service providers designed specifically for digital business workflows.

In Africa, for instance, businesses have been coming online at a blistering pace. In fact, Mastercard recently found that 93% of SMBs in sub-saharan Africa have digitized at least one facet of their business.

Over $500M has been raised by African B2B commerce startups like Wasoko, Alerzo, and Sabi to digitize SMBs. 90% of that funding amount came between 2020 and 2021.

These companies have focused on digitizing top of funnel workflows, including point of sale payments.

A similar digital transformation of SMBs has been occurring in Latin America, with 83% of LatAm’s over 10 million SMBs now actively investing in digitization.

On the fintech side, companies like Nubank (NU, $42BN market cap), Latin America’s leading neobank, and others like Clara ($408M raised), Jeeves ($368M raised), Pomelo ($103M raised), and Pismo ($118M raised, acquired by Visa) have been pioneering SMB payment on and off ramps.

Meanwhile, companies like Melonn ($25M raised) have focused on digitizing e-commerce fulfillment and back office operations.

The TAM for SMB digitization in Latin America is still enormous; Cisco found that only 24% of SMBs across LatAm are in advanced digitization stages, and only 4% are fully digitally native.

There is a Massive Opportunity to Service Businesses Coming Online →

As SMB digitization accelerates, I see a major opportunity in 2024 for a new wave of emerging startups to service digital SMBs with AI-enhanced software solutions in areas like:

• Business insurance

• Fraud detection & prevention

• Accounting & tax

• Legal

• Healthcare & benefits

• Cybersecurity & digital identity

SMBs coming online have a fundamentally new set of systems and workflows, from filing taxes to managing insurance risks and providing employee benefits. Each of these workflows presents an opportunity for a new, category-defining startup.

For example, a company to keep an eye on is Latú Seguros ($7M raised), providing seamless business insurance for digital businesses across Latin America. A more established comparable to Latú in the U.S. is Vouch Insurance ($160M raised).

Latú offers a variety of insurance services like cyber insurance tailored uniquely to digital businesses across Latin America.

Another to watch is Momentu ($2.5M+ raised), a fast growing startup providing a corporate mental healthcare platform for many of Latin America’s leading tech companies like Rappi and Clara. A comparable in the U.S. is Spring Health ($2.5BN valuation), which soared after partnering with leading benefits providers to distribute their mental health benefits solution nationwide.

And in Nigeria, Dojah (YC S22) is an emerging player in SMB user authentication and identity management, servicing many fast growing fintechs scaling across Africa like Moni with a comprehensive suite of verification & compliance functionality.

I expect that category-defining companies in these service areas will likely leverage LLMs for highly personalized and conversational experiences.

4. E-commerce personalization & loyalty

As businesses and consumers come online in emerging markets in 2024, barriers of entry to e-commerce will drop substantially. With growing financial stability accelerated via technologies like Web3, consumer purchasing power will accelerate.

These tailwinds will begin to catalyze an e-commerce renaissance in regions like Latin America and Africa.

The B2C market in Latin America is expected to surpass $7.5 trillion by 2030; the continent currently has over 300 million digital buyers (out of a total population of 652 million), and this number is expected to grow by over 20% by 2027. In particular, Brazil and Mexico are expected to be at the forefront of LatAM e-commerce, with projected CAGRs of 77.2% and 68.2% respectively.

E-commerce incumbents in Latin America like Mercado Libre (MELI, $89BN market cap) and Rappi ($5.2BN valuation) are positioned to thrive.

Meanwhile, in Africa, e-commerce penetration is expected to surpass 500 million individuals by 2025, at a CAGR of 17%. Much of this growth will come from mobile, which contributes to 70%+ of e-commerce traffic in Africa today.

With a continent-wide population of 1.4 billion people today, expected to grow to 2.5 billion people by 2050, it’s hard to fathom how massive the African e-commerce market will be in coming years. E-commerce incumbent Jumia (JMIA), the ‘Amazon of Africa’, now sits at a $302M market cap after falling from a peak of over $6BN in 2021. Jumia’s stock price has taken a hit as Africa’s economy has corrected in recent years.

While a rebound in Africa’s e-commerce market will likely take several years, the outlook for early e-commerce movers like Jumia is bright.

New Opportunities for Personalized E-commerce & Loyalty Rewards →

However, I believe we’re now entering an exciting window of opportunity for early-stage startups closing the gap between incumbent e-commerce platforms and real-time consumer preferences.

We’ll likely see category leaders emerge in these areas:

• Convenience & accessibility

• Hyperlocal services

• Loyalty

• Engagement analytics

Following similar trends in the U.S. and Europe, where a layer of personalization and loyalty emerged above platforms like Amazon, Uber, and Shopify in the 2010s and minted several new unicorns, I expect a similar phenomenon to occur in emerging markets.

Here are a few comparables in the U.S., to put this opportunity in context:

• Sprout Social (SPT, $3.6BN market cap) was founded in 2010 to provide real-time e-commerce analytics for leading consumer brands.

• Ibotta ($1BN valuation) was founded in 2011 to unlock cash back rewards on e-commerce purchases.

• Dosh ($90M raised, acquired by Cardlytics) was founded in 2016 to provide cash back for consumer experiences and utilities, from shopping to dining and gas.

• Snackpass ($96M raised), was founded in 2017 to provide a social commerce layer above restaurant point of sale systems.

• Lolli ($28M raised) was founded in 2018 to offer crypto rewards for online shoppers — Lolli has partnered with leading e-commerce marketplaces like Amazon, Walmart, and Sephora to provide a percentage of a shopper’s purchase back to them in crypto.

The Latin American loyalty market is expected to grow by 13.2% annually between 2022 and 2026 to $11 billion.

Given the mobile-first nature of markets like Latin America and Africa, there will be an exciting opportunity for first movers with mobile-native e-commerce apps like Sumer ($10M raised) to offer integrated loyalty and analytics solutions.

I also expect meaningful opportunities for M&A, where incumbent e-commerce platforms like Mercado Libre, Rappi, or Jumia will purchase startups that provide complementary social commerce, loyalty, and analytics solutions.

It would benefit startups tackling this category to build close relationships with e-commerce incumbents from the start, in order to establish valuable distribution and M&A moats.

5. Digital home financing and servicing solutions

Last but not least, I’m confident that proptech is overlooked in emerging markets at the moment.

Areas of particular opportunity in 2024 include property financing in Africa and property management and servicing in Latin America and the Middle East.

With rate hikes occurring globally in the past two years, the proptech market has received substantially less confidence from investors. Global venture funding for proptech dropped 42% in 2023, and was down to nearly one-third of 2021 volume.

Proptechs in the U.S. have largely struggled.

Home financing pioneer Better.com (BETR), founded in 2016 to unlock online home financing in the U.S., cratered from a $7.7 billion private market valuation in 2021 to a now $440M market cap after going public via SPAC in mid 2023.

Veev, a homebuilding startup valued at over $1B in 2022, shut down in late 2023. And of course, WeWork filed for bankruptcy in Q4 of 2023 as well.

Proptech Tailwinds are Accelerating in Emerging Markets →

Meanwhile, proptech has been a different story in markets like the UAE, where a surge of demand for higher end properties has propelled home financing companies like Huspy ($47M+ raised) to record breaking months of volume in 2023. This growth has coincided with soaring property prices in the region; Dubai witnessed the largest jump in prices in the world through 2023, eclipsing cities like Miami and Paris.

As buyers purchase homes in the UAE, there is a now emerging opportunity for property management and maintenance solutions. Upstarts like Keyper ($6.5M raised) and Silkhaus ($7.8M raised) are two to keep an eye on in this realm.

In Latin America, there have been several breakouts in the homebuying space over the past few years like Habi in Colombia ($550M raised) and Loft in Brazil ($888M raised), with the vast majority of proptechs (225 companies of about 350 total) located in Brazil.

Similar to the UAE, I believe there is an interesting window of opportunity in Latin America for emerging startups focused on home renovation, management and servicing, including in areas such as IoT and augmented reality.

There are also emerging opportunities in areas such as property investment in Latin America — check out comparables like Yieldstreet ($730M raised, acquired Cadre in 2023) and Roofstock ($365M raised) in the U.S.

Meanwhile in Africa, which has lagged several years behind Latin America in financial connectivity, there is an enormous proptech market opportunity on the horizon. Currently, about 30% of remittances into Nigeria and Ghana are funneled into real estate. Demand for home buying is clearly there, and will accelerate with greater consumer financial stability.

The primary area of friction for homebuying in Africa at the moment is a lack of access to personal credit for the consumer.

However, as a wave of fintechs like Moni address this credit data gap in the coming years, empowering merchants and consumers to build and verify their credit, I believe there is a tremendous opportunity for a “Better.com for Africa” to emerge, unlocking frictionless home financing for hundreds of millions of African consumers.

One early entrant into that market is Seso, which leverages blockchain technologies to drive trust and transparency in the homebuying process in Nigeria and Ghana.

I’m optimistic that a category-defining startup in this market has the potential to be born in 2024.

That’s all for now, I appreciate any feedback you may have!

Cheers,

Kevin

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Disclaimer: All information contained on Emerging Market VC is not intended as, and shall not be understood or construed as, financial advice. All views and ideas expressed are my own.

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Hello!

Welcome to my fourth piece on Emerging Market VC, where each week I’ll share technology trends and companies in emerging markets that I’m following closely. As a reminder, I’ll publish primarily in two formats:

• Deep dives into market dynamics & trending stories in LatAm, Africa, the Middle East, and Southeast Asia

• Features (narrative style) on early-stage companies I’m bullish on in these regions — I meet personally with every company to unpack the story & opportunity, and am often either an investor or interested in potentially being one.

This week’s piece will be on the shorter side, summarizing my findings from data wrangling with regard to emerging market VC investment activity over the past two quarters.

Let’s jump straight into it!

Cheers,

Kevin

Which VCs are actively deploying in EM?

Many global venture firms say they’re “actively investing” in emerging markets — Latin America, Africa, the Middle East, and Southeast Asia specifically. But amongst the noise, who is actually ACTIVELY deploying?

To my surprise, I couldn’t find an actionable, real-time, and consolidated ranking anywhere. 🤦

Saving Time for Founders in these Regions

Based on feedback I’ve heard from early-stage founders in these regions, the lack of a centralized, updated resource on deal-making activity is painful — particularly when putting together an investor hitlist for PreSeed, Seed, or Series A rounds.

For a founder aiming to optimize their time and run a tight fundraising process, which firms are worth adding to your hitlist?

A few questions to ask yourself:

• Who is actually deploying (and worth my time)?

• Of the firms actively deploying, whom have they backed recently? (to avoid competitive dynamics)

• Of the firms actively deploying, are they the right stage and category fit for us?

• Do they actively lead? (It’s often far more efficient to prioritize a lead first, the rest will follow once a lead is secured)

So this week on Emerging Market VC, my goal was to wrangle some data and put together (to the best of my knowledge) the most comprehensive “living” leaderboard of venture firms actively investing — over the past two quarters — in emerging markets across Africa, Latin America, the Middle East, and Southeast Asia.

My intent with this database is to save founders in these regions time and reduce headache from dozens of investor calls that go nowhere — simply because those firms are not actually deploying capital at the moment.

Rather than pitching firms that are sitting on the sidelines, focus on engaging the firms actively deploying. ✅

A few parameters for this database:

• Based on publicly available data — I’m fully aware there are early-stage deals that have been made in stealth and/or unreported. Please take the metrics here as general guidance rather than absolute fact.

• Firms listed have made at least 2 investments in the past 2 quarters (based on publicly available data). For simplicity’s sake, I have hidden the broader list of firms with 1 publicly listed deal in these regions over the past two quarters (feel free to DM me for the larger list).

• Only equity investments (I’ve excluded grants / debt) 

• Only venture backed tech startups (I’ve excluded real estate projects, utilities, banks, and other irrelevant vehicles)

• PreSeed, Seed, Series A, and Series B (excluding growth stage investors)

I’ll update Emerging Market VC’s Deal Activity Leaderboard every quarter to reflect the latest, as a free public resource. So please do let me know if there are features you’d like to see:

I’ve added fields such as Stage, Generally Leads(?), and Sectors to help you better drill down into which of these firms may be the best fit to add to your fundraising hitlist.

Happy to facilitate intros:

I’m connected with many of the firms on this list — feel free to subscribe to www.emergingmarketvc.com and request an intro by DM via LinkedIn or at kevin@emergingmarketvc.com.

I’d be happy to broker an intro if it makes sense for all parties! Or at the very least, given my understanding of what these firms are looking for, advise on how to best position for successful outreach.

Also including my sources for this research here: Crunchbase, Pitchbook, CBinsights, Google search, direct input from founders.

My Findings

OK, now on to the fun part. I’ll summarize a few of my findings below.

Of over 1,000 firms investing across emerging markets in the past two quarters, the three most active firms in aggregate are… drumroll please…

• Antler — Antler is a global, generalist, PreSeed & Seed investor powered by a global community of operators, investors, and builders.

• Techstars — Techstars is a global accelerator with cohort-based investment decisions. Generally invests $120K at between $3M to $5M valuation cap.

• 500 Global — 500 Global is a global venture firm with regional, cohort-based accelerator programs. Accelerator programs generally invest $80K to $100K and involve a two month engagement.

Interestingly, the past two quarters saw a particular density in investment activity in Southeast Asia and the Middle East, with generally more conservative activity in Africa and Latin America.

Across each region, the most active investors are typically generalists.

Africa Leaderboard

In Africa, the top ten investors by deal activity were:

1. Techstars

2. Ventures Platform

3. Proparco

4. Goodwell Investments

5. Founders Factory Africa

6. Y Combinator

7. LoftyInc Capital

8. P1 Ventures

9. VestedWorld

10. Launch Africa

Latin America Leaderboard

In Latin America, the top ten investors by deal activity were:

1. FJ Labs

2. Kaszek

3. ACE Ventures

4. DOMO.VC

5. Techstars

6. 500 Global

7. Monashees

8. SaaSholic

9. Valor Capital Group

10. QED Investors

Middle East Leaderboard

In the Middle East, the top ten investors by deal activity were:

1. Alesta Yatırım

2. Arya Ventures

3. Shorooq Partners

4. Flat6Labs

5. Cyberstarts

6. APY Ventures

7. Team8

8. Plug and Play

9. Lightspeed Venture Partners

10. Vision Ventures

Southeast Asia Leaderboard

In Southeast Asia, the top ten investors by deal activity were:

1. Antler

2. East Ventures

3. Wavemaker Partners

4. Gobi Partners

5. Seeds Capital

6. Iterative

7. M Venture Partners (MVP)

8. 500 Global

9. SOSV

10. AC Ventures

I appreciate any feedback you have on this leaderboard! I’ll update it quarterly (beginning of each new quarter) to reflect the latest deal activity rankings across emerging markets over the prior quarter.

I’m also happy to make adjustments and/or add additional helpful criteria. If you feel a particular datapoint is incorrect, please do reach out directly and I’ll make corrections where necessary.

Most importantly, my goal is to make this database a definitive, trusted, and actionable resource for early-stage founders across these regions.

Thanks for reading! Until next week 👋

-Kevin

Stay up to date on emerging market trends and companies I’m following closely as an emerging VC investing in LatAm, Africa, the Middle East, and Southeast Asia:

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Stay up to date on my weekly column covering Emerging Market trends, companies, and stories to keep on your radar, from the lens of a VC. By day I’m the General Partner of Predictive VC, investing in early-stage companies like Esusu, Pomelo, Huspy, and Moni across the U.S., Latin America, and EMEA.

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An Overview

I first met Moni via my colleagues at 186 Ventures in Boston. They’d astutely managed to pick the company out of a crowded batch of seed stage YC companies.

Moni is a pioneering fintech startup providing innovative community banking services in Africa. The company has since raised $4 million to date from Y Combinator, 186 Ventures, Magic Fund, Predictive VC, Uncovered Fund, and others to transform the financial landscape of over 500 million underbanked consumers, merchants, and mobile money agents on the continent, and has grown 20% MoM over the past two years towards this mission. 

Here are a few quick facts:

• Merchants Onboarded: 36,000+ (20% MoM merchant growth)

• Investors: Y Combinator, 186 Ventures, Magic Fund, Predictive VC, Uncovered Fund 

• Fundraising: Plans to raise Series A in early 2024

• Recruiting: Now hiring engineering, sales, and growth 

When I met Moni Co-Founders Femi Iromini and Adedapo “Dapo” Sobayo over coffee, I was struck by the implicit trust in their relationship. The two were like a married couple, filling in each other’s sentences with knowing glances throughout the conversation.

I knew there had to be a long history between them. Let’s unpack it.

It Started with a Fashion Magazine

Moni’s origins trace back to Obafemi Awolowo University in Nigeria, where the pair were undergraduates studying physics and economics, respectively. They collaborated on publishing two magazines, including one called JEANS, which became the most widely read magazine on campus. Many sleepless nights on the publication grind laid the foundation for their partnership. 

Post-university, Femi and Dapo pursued careers in banking and fintech. 

Dapo joined one of the largest banks in Nigeria, Zenith Bank, with over $24 billion in assets under management, before moving to a lending startup called Zedvance, where he developed lending products and risk management models revolving around credit scoring and identity verification. At Zedvance, he focused on two primary categories of consumers: private and public sector employees. While there, he launched one of Africa’s first lending apps fully integrated with federal government employee systems, yielding near instant, single to double digit digital loans.

Meanwhile, Femi worked in investment banking before catching the entrepreneurial bug, launching an edtech company called Lead360, designed to prepare African university students for professional life. He was then on the founding team for one of Nigeria’s early digital banks, Mintyn.

Femi subsequently joined the World Bank, where he developed a framework to finance education and sustainability in West Africa. While at the World Bank in 2019, he re-connected with Dapo — seven years after their undergraduate entrepreneurial endeavors.

The pair met over dinner to deliberate some of the systemic challenges they’d experienced in financial services. Femi asked Dapo, “If you could dedicate the next phase of your career to a specific area, what would it be?” 

“Peer to peer lending,” Dapo responded. The seeds for Moni were planted.

Early Innings: An MVP Born Out of Necessity

The pair began to iterate on an initial wedge into the peer to peer lending market. 

They had two demographics to solve for: the lender on one side, and the borrower on the other. However, they faced a dilemma: how to scale lender volume and generate meaningful economics without an institutional banking middleman, while simultaneously onboarding credible, high quality borrowers. 

Via friends, they had an accessible network of possible lenders, but were still iterating on an experience and strategy for borrowers when COVID struck. 

A family friend of Femi’s lost her job, and facing dire circumstances, decided to start her own mobile money agent business. Essentially, “mobile money agents” act as middlemen between cash lenders and borrowers, facilitating these transactions using payment accounts such as M-Pesa on their mobile phone. They generally build a loyal set of day-to-day customers within their local community and take a commission on transactions at between 0.5% to 1%.

Femi trusted her and fronted the cash to support her. The business quickly expanded from one to three locations in a matter of months. Given the growing liquidity needs for her business, Iromini agreed to provide additional funds. 

At a certain point, however, Femi began to worry about how his funds were being used. While inquiring about the use of his capital, out of curiosity he asked about whether his friend knew of other agents facing this liquidity challenge.

Her response? “It’s normal for mobile money agents!” She then proceeded to introduce Iromini to several colleagues who were building similar businesses, including a lady named Eunice. 

In December of 2020, Femi and Dapo drove almost seven hours to meet Eunice in a town called Shapati, on the outskirts of Lagos. They were shocked — almost every household in the town relied on mobile money agents. 

The closest bank to the town was almost two hours away. When they arrived, there were five women waiting for them, and each was an agent. It was an “ahah!” moment for the pair. During the meeting, several people came by asking for a loan. However, because the five women didn’t have the funds readily accessible, they had to let the transactions go. 

Right there and then, Eunice created a WhatsApp group between herself, Femi, Dapo, and a few potential borrowers. Femi and Dapo had not intended to provide any loans themselves

“Eunice and the borrowers were quite persuasive in their need for money that month.” - Dapo

Sensing an opportunity, Femi and Dapo agreed to make a loan on the spot, committing a $2,000 personal amount across the five borrowers, with an agreed upon interest rate. 

They had no expectation this capital would be returned to them, but knew a worthwhile experiment when they saw one. The five borrowers agreed to repay the loan in seven days. It was a handshake agreement, based purely on trust. 

Seven days later, the five borrowers reached out — all five paid the loans back with interest. However, they wanted to take out more! Femi and Dapo agreed. 

This cycle happened for the next three months, with the borrowers agreeing to pay back at 7pm every Thursday. One day, one of the borrowers paid late by fifteen minutes, due to a supposed “network issue.” After his payment, Femi and Dapo immediately removed him from the WhatsApp group. 

Signs of PMF: Validating With a Simple, No Code Solution

Here’s how Moni’s initial solution worked:

Dapo spun up a Google Form, which was shared with borrowers via a WhatsApp group to fill in personal and bank account details. The pair would discuss terms individually with each borrower, and send them details for a pooled bank account to repay their loans.

When a borrower paid late, he or she was removed from the WhatsApp group for several weeks. In that scenario, others in the group who knew the late borrower personally would reach out directly with a threat of further suspension.

Effectively, the idea for “crowdsourcing trust” was born; when it was time for a borrower to repay a loan, a member of the group who knew the borrower personally would ping them.

For the first four months, Moni’s operation was run entirely through WhatsApp and Google Forms, expanding from one to several clusters. Femi and Dapo personally facilitated over one thousand loans during this period, manually, from their savings. 

Painpoints: A Banking Landscape Not Designed for SMBs

Femi and Dapo quickly learned that giving loans to self-employed people, at reasonable scale, was quite painful. In fact, most African banks refused to do it, because it was difficult to predict financial patterns of self-employed professionals.

As a result, micro businesses often refrained from visiting banks at all. Only around 9% of SMBs across Africa have been able to access bank financing over the past few years.

The pair found that, despite fast-growing demand for their system, their primary bank was extremely wary of providing a loan without collateral. 

For African banks to provide loans, they depend on credit bureaus to underwrite them. The challenge with credit bureaus in Africa, however, is that the data is inaccurate. Because the data is so fragmented, even when banks do give out loans, they often do not update the data in credit bureaus to reflect the transaction. 

Furthermore, limited data exists on individuals’ transaction history — there is generally no centralized ledger of personal transactions. Instead, this information is cobbled together across a variety of channels, which is particularly painful given a vast majority of these transactions are made in cash. 

“Digital only solutions do not work in most parts of Africa – internet penetration is still too low, and cash is king.”  - Femi

In fact, about 90% of transactions are still cash based. And about 10 to 15% of transactions are via smartphone — a segment being catered to by digital banking providers like Kuda.

Unlike in many developed countries, where credit scores meaningfully impact everyday life, in Africa, credit scoring is not top of mind for consumers. 

As a result, Femi and Dapo had to solve for these data gaps in loan underwriting in order to develop a scalable solution. They didn’t need to develop an insanely complex system, rather, they just needed to collect and provide sufficient data for their initial set of mobile money agents to begin underwriting each other. 

Uniquely, because each mobile money agent in a cluster knew each other personally, they already had more information than any bank on prospective borrowers — they knew where they lived, and they knew their family and friends. This social intelligence was difficult to quantify, but it was extremely powerful towards accountability. If someone defaulted, it impacted the credibility of their peers. And each agent was extremely conscious about that social credibility. 

So how big is the mobile money agent market, exactly? 

There are currently around 3 million mobile money agents across Africa, generating approximately $124 billion in transaction value each year. Dapo believes that Moni can achieve over $100 million in annual revenue in the next few years within this segment alone. 

However, Moni’s larger vision is to serve Africa’s underbanked consumers. Of Africa’s total population of 1.2 billion people, around 50% of them are underbanked at the moment, equating to roughly 600 million potential consumers. 

According to Dapo, most fintechs on the continent, such as Kuda, Branch, Carbon, and Tymebank are primarily focused on Africa’s middle class at the moment. However, Moni is positioned to solve for the largest underbanked segment, which requires a fundamentally community-driven approach. 

This market is expected grow meaningfully within the next few years — not just within Africa, but around the world. Zooming out, the global community banking market is expected to grow to over $200 billion by 2027 at a 5.3% compound annual growth rate.

Scaling Up: Rapid Growth Via Word of Mouth 

Word about Moni spread quickly. 

In fact, the team has barely invested in marketing to date. Agents were naturally inviting other agents within their community, and the company quickly established a backlog of interest. Micro businesses also quickly began to adopt Moni, unlocking a vastly larger market — in Africa, over 80% of jobs are provided by small businesses, compared to around 46% in the United States. 

The loans were changing lives. One agent mentioned he’d almost committed suicide until the moment where he was able to access a loan through the Moni pool and stabilize his business. 

After an explosive period of 50% month over month growth in mid 2021, the team brought on several well-known African angel investors for a PreSeed funding round to building out key product functionality, including the ability for money agents within a cluster to contribute 16% of their lending principal amount to a shared pool of funds, on which they’re able to earn interest. With this functionality, when a member of the cluster defaulted, other agents in the cluster would be able to vote on whether to use the pooled amount to liquidate the loan. 

With several banking partners in place, Moni also quickly added wallet infrastructure to assign accounts to agents and clusters, providing real-time insight into payment activity. 

Agents then wanted savings functionality, for which Moni required — and obtained — a banking license with one of the largest banks by footprint in Africa, unlocking a powerful pan-African distribution channel. 

And by 2022, Moni was positioned as an early mover in the digitization of lending amongst mobile money agents, small business owners, and consumers in western Africa.

Moni then attended Y Combinator, after which the founders closed a $3.5 million seed round from investors including 186 Ventures, Magic Fund, Predictive VC, Uncovered Fund, and more. 

Moni ended 2022 with a 1,662% increase in revenue growth from 2021, a 99% loan repayment rate across 16,000 merchants, and 40 full-time employees. And as of Q3 2023, the company has onboarded over 36,000 merchants.

How does Moni make money?

Currently, Moni primarily generates revenue from interest earned on loans provided. As the company expands its community banking model, there will be opportunities to drive multi-channel revenue including commission on transaction fees, loyalty, and other premium services. 

Big Vision: Community Banking for Merchants & Customers

Looking forward, Moni aspires to be the leading player in community banking across Africa by expanding vertically for merchants and their customers, and horizontally across multiple African countries, focusing particularly on French and English speaking regions. 

Given the company’s lending wedge for merchants, the founders are particularly excited about opportunities to double down on forms of banking that do not require smartphones. Leveraging their initial wedge into merchant lending, Femi and Dapo are next focused on opportunities to create accounts for cash-based consumers interacting with their local merchants, effectively equipping local merchants across Africa with distributed and embedded banking infrastructure to act as community banks themselves. 

By empowering merchants to provide loans, loyalty, and other financial services to consumers, Moni will play a proactively role in establishing many African consumers’ first financial accounts, above which Moni can then provide tailored financial products such as savings, staking, and investing. 

Macro Outlook

At a macro level, I believe Moni’s ambitions to service the African consumer may be bolstered by inflationary tailwinds — in October 2023, Nigeria’s annual inflation rate rose to 27.3%, its highest in 18 years. This is largely due to a drop in foreign dollar inflows into Nigeria for oil, which accounts for 90% of Nigeria’s export economy, as well as a major backlog of dollars owed by the central bank to local banks. 

Given many corporations in Nigeria had previously purchased sizable dollar FX forwards, or contracts locking in dollars at a defined exchange rate, that are coming to term, local banks have been forced to provide liquidity without the support of the central bank. This has significantly depleted the circulating supply of USD.

Currently, Nigeria has over $7 billion in FX forwards due. 

Given an extremely weakened Naira, many Africans are seeking financial stability via other mediums such as stablecoins, a form of cryptocurrency pegged to international reserve currencies such as the US dollar. To address this demand, Moni also soon plans to enable consumers to access stablecoins via their accounts, just a stone’s throw away at their local community merchant.

“We think of it like convenience banking — we come to meet you, where you shop,” said Dapo. 

Risks to Consider

In evaluating Moni’s position and potential in the community banking market, here are a few key risks to consider:

• Macro / Currency: Continued Naira devaluation presents a general market risk for Moni’s agent, merchant, and consumer users, decreasing purchasing power and transaction volumes.

• Liquidity: As Moni’s loan volume grows, the risk of a liquidity crisis increases in a scenario where the company may not be able to meet short-term financial obligations, potentially leading to systemic defaults.

• Regulatory / Compliance: Increased lending volume will come with greater regulatory scrutiny and risk of crackdown by local and regional policymakers.

• Competition: Larger lenders such as Kuda, Branch, Carbon, and Tymebank, or upstarts such as FairMoney (Nigeria), LulaLend (South Africa), and LipaLater (Kenya) may push further into the underbanked market.

Concurrently, Moni is prioritizing banking license partnerships to navigate the evolving regulatory landscape, innovation in areas such as stablecoin balance management towards providing savings stability, and debt partnerships to ensure a backlog of liquidity.

I believe there are several pan-African unicorns to be built in this space, and the eventual market leaders will be the teams that have proactively mitigated these risks.

The race is on.

Gearing Up for Growth in 2024 

With foundations in place, Moni is preparing for growth heading into the new year. The company has key banking and regulatory partnerships established, along with a passionate, committed, and fast growing merchant customer base. Moni is now hiring for key technical and sales leaders. 

“We've been able to develop a great culture as a company. The right leadership talent is major for us at the moment, especially in engineering and sales. If you’re looking to make an impact at a mission-driven company primed to impact the underbanked population across Africa, reach out!”  - Dapo

To capitalize on its merchant growth, Moni is gearing up for a Series A in early 2024.

Thanks Femi and Dapo for sharing your story!

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Disclaimer: All information contained on Emerging Market VC is not intended as, and shall not be understood or construed as, financial advice. All views and ideas expressed are my own.

Disclaimer: I am an institutional investor in Moni via Predictive VC.

Stay up to date on emerging market trends, stories, and companies I’m following closely as an emerging VC investing in LatAm, Africa, the Middle East, and South Asia. Publishing twice weekly:

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Hello!

Welcome to my first piece on Emerging Market VC, where each week I’ll share technology trends and companies in emerging markets that I’m following closely. I’ll publish primarily in two formats:

• Monday: deep dives into market dynamics & trending stories in LatAm, Africa, the Middle East, and South Asia

• Friday: features on early-stage companies I’m bullish on in these regions

Why am I starting Emerging Market VC? My goal is to provide well-researched content on undercovered emerging market tech trends and companies for global technology investors (like myself) seeking intel (and alpha) in these regions.

A bit about me, I’m Puerto Rican Chinese-American, and the General Partner of Predictive VC, where we invest into early-stage companies unlocking upward mobility across the US and emerging markets.

As a ‘global citizen’ and product nerd, I am passionate about the evolution of cross-border digital connectivity and the intersectional dynamics between culture, socioeconomics, and innovation in emerging markets. I look forward to keeping you updated on the tech stories and opportunities in these regions that I find interesting and relevant. Let’s get started — just like any MVP, Emerging Market VC is a work in progress… I’d love your feedback!

Cheers,

Kevin

Playing a Long Game ⏰

Over the past three decades, China has strategically embedded itself in Africa, playing a long-term game that has largely flown under the radar.

From forging political ties through aid in the 1990s to expanding investment in telecom and transportation infrastructure in the early 2000s, and spearheading mobile, energy, healthcare, and education development in the 2010s, China has had a far reaching vision for Africa.

With Africa projected to double its population by 2050, becoming home to over a quarter of the world's people, the continent's political and economic influence are set to take a massive leap.

Why does this matter? 🤔

As the world’s second most populous continent (1.7 billion people) with fifty four member states in the United Nations and three seats on the UN Security Council (out of a total of fifteen seats), Africa will be in an enviable position to amplify its global footprint over the next few decades.

Meanwhile, China is pulling strings, playing a substantial role in shaping Africa's trajectory while gaining significant political & technological leverage itself.

The dynamics at play in China’s ‘long game’ in Africa are fascinating and under covered. In this piece, I’ll share a history of China’s involvement in Africa, my perspective on the implications, and areas of investment I’m focused on given the circumstances.

• Part 1: China’s Foundations in Africa

• Part 2: Establishing Moats

• Part 3: Implications of these Moats

• Part 4: A Window of Opportunity

As an early-stage investor, I believe we’re entering a ripe window to identify the next series of unicorns in Africa, despite a general pullback in VC interest this year; China’s formative role in Africa’s tech ecosystem is a key catalyst for this thesis.

It may be a revelation to you — it certainly was for me — that many of the fastest growing technology companies in Africa, from OPay in fintech to uLesson in education and mPharma in healthcare, have deep Chinese ties.

Furthermore, China is now rapidly connecting the dots across each of these verticals into a unified digital operating system, or a ‘Digital Silk Road’ as coined by Chinese President Xi Jingping, as part of its master plan.

Remember the movie Eagle Eye, with the all-seeing supercomputer?

At a broader geopolitical level, the realization of China’s ‘Digital Silk Road’ initiative underscores the urgency for Western policymakers to prioritize investment in African technological infrastructure. Failing to do so may result in the surrender of significant global political and technological leverage to China over the next decade or two.

Let’s dive in.

Part 1 — China’s Foundations in Africa 🛠️

China and Africa are no strangers.

In fact, legendary Chinese seafarer Zheng He brought a giraffe back from his expeditions to the continent in the early 15th century, inspiring a wall painting of the animal in the Ming Imperial Tomb in Beijing.

We’ll focus our attention on the 1990’s onwards, however, when the Sino-African relationship begins to heat up.

Early 1990s: Public Sector Aid

During the early 1990s, the relationship between China and Africa was dominated by public sector development aid, which grew from around $110 million per year to $3 billion per year over the course of the decade. Approximately 64% of that aid went to infrastructure development and construction on the continent.

Late 1990s: Telecommunications Revolution

In the mid to late 90s, Chinese telecom companies such as Huawei, ZTE, and China Telecom began to play meaningful roles in establishing and upgrading telecom infrastructure across Africa.

Early telecom infrastructure development in Africa was enhanced by China's "Go Out Policy," launched in 1999, which aimed to promote Chinese investments abroad, internationalization of Chinese companies, and deeper ties with Africa.

This policy was carried out by various Chinese state-owned financial institutions, including the Export-Import Bank of China, the China Development Bank, and the China-Africa Development Fund, which by mandate began accelerating their investment in Africa.

Early 2000s: Corporate Infrastructure Growth

In 2000, China announced a newly formed Forum on China–Africa Cooperation (FOCAC) to accelerate collaboration with Africa, which quickly became more popular for African leaders to attend than the UN General Assembly!

Spurred by the FOCAC, China began facilitating sizable corporate investment in Africa to the tune of approximately $6.6 billion between 2000-2006 and $23 billion between 2007 and 2020.

In 2007, for example, the Industrial and Commercial Bank of China purchased 20% of Standard Bank Group of South Africa, then the largest bank in Africa, for $5.6 billion.

During this period, western countries largely stood by the sidelines. In fact, China’s corporate investment was more than double the amount lent to corporate development in Africa by banks in the United States, Germany, Japan and France combined.

Notably, China also emerged as the undisputed leader in the installation of fiber optic cables across Africa, contributing substantially to digital connectivity. In fact, China claims to have laid over half of the continent’s wireless sites and high-speed mobile broadband networks.

Beyond fiber optics, Chinese companies invested aggressively in pan-African communication and transportation infrastructure, including development of the following:

• 10,000 kilometers of railway

• 100,000 kilometers of highway

• 1,000 bridges

• 100 ports

• 66,000 kilometers of power transmission and distribution network

• 120,000 megawatts of installed power-generating capacity

• A 150,000-kilometer communications network

• A network service covering nearly 700 million user terminals

Chinese companies claimed 85% of construction contracts in Africa during this period. 🤯

So how did the financing model work behind this explosive period of Chinese corporate investment in Africa?

Let’s unpack two key levers.

Lever 1: Independent Entrepreneurial Activity

Generally, Chinese companies and entrepreneurs independent of the Chinese government spearheaded projects on the continent. However, they were able to then access cheap loans, called ‘Iron Triangle Loans’, which I’ll discuss next.

Lever 2: Iron Triangle Loans

Chinese companies leveraged Iron Triangle Loans from state-owned banks like the China Development Bank and EXIM Bank to substantially underbid competitors in Africa, wrestling market share from non-Chinese firms such as Ericsson, Alcatel, Nokia, and Siemens.

These loan agreements often imposed strict confidentiality on borrowers, with contracts governed by Chinese law — any disputes that arose were required to be settled by arbitration in China.

In essence, Iron Triangle Loans are loans granted at very low interest rates at terms that cannot be matched by commercial banks.

Since the early 2000s, they have been heavily leveraged in Africa, where companies across 24 countries have taken up to an estimated 57 loans, totaling US$4.7 billion, to fund telecom infrastructure projects.

China effectively overwhelmed corporate competitors in Africa with capital infusions, paired with strict obligations.

Late 2010s: Connecting Dots (Mobile, Energy, Healthcare, Education)

In 2013, China announced its Belt and Road Initiative (BRI) with a mission to drive trade connectivity across Africa, the Middle East, Russia, and Asia. This initiative has played a critical role in shaping China-Africa relations ever since.

As part of BRI, China further accelerated its pace of African investment, pledging $60 billion at the Forum on China-Africa Cooperation (FOCAC) in 2018 to enhance infrastructure projects on the continent.

In the late 2010s, however, China began to extend its reach in Africa beyond foundational infrastructure into key verticals such as mobile, energy, healthcare, and education — the next phase of its master plan.

Mobile

China’s influence on consumer mobile adoption in Africa has been substantial, largely driven by Chinese companies such as Huawei and Transsion, the latter which sold nearly half of all smartphones (40%) in Africa in 2020 alone. Chinese companies currently account for over half of Africa’s mobile phone market and 70% of Africa’s mobile networks.

Africa is adopting smartphones at an astonishing rate.

At the end of 2020, there were 495 million mobile subscribers in sub-Saharan Africa, representing 46% of the region’s population, and that number is projected to rise to 615 million subscribers by 2025.

Energy

China has aggressively expanded its renewable energy initiatives in Africa, providing extensive funding and support for development — including a $20 billion credit line announced in 2018. As of 2022, China has contributed to over 22%, or about 5,000 MW, of Africa's total installed renewable energy capacity.

China has also pledged to support Africa’s environmental and biodiversity protection efforts. Coined the “Great Green Wall,” this initiative is expected to have a ripple effect on the African labor economy — it is estimated that the energy transition could accelerate jobs in renewables from around 350,000 in 2020 to 4 million by 2030 and over 8 million by 2050.

Healthcare

As part of its Belt and Road initiative, China has committed significant healthcare personnel, financing, and infrastructural support to Africa.

One example of this is the $80 million African CDC headquarters in Ethiopia, originally planned as a U.S.-China-Africa collaboration. But when relationships soured between Washington and Beijing under the Trump administration, that plan fell apart and the agreement was redesigned as one between China and the African Union.

And in 2021, China pledged to deliver over 1 billion COVID vaccines to Africa.

Education

China’s reach also extends deeply into African technology research and education. In 2009, China launched the China-Africa Science and Technology Partnership Plan (CASTPP), with an objective to fuel technology transfer on the content.

Since then, China has allocated over $60B in technology research initiatives to African institutions, with a particular presence in Africa’s largest countries including Nigeria, Kenya, Ghana, South Africa, and Egypt. The funding has been directed towards training African scientists across a range of futuristic verticals including biotechnology, space technology, and satellite communications.

As of 2014, China emerged as the preferred destination for international students from Africa, surpassing both the United Kingdom and the United States. And in the following year’s FOCAC, China committed to provide 32,000 government scholarships to Africa, double the 18,000 offered in the prior 2012 FOCAC.

China’s diversified involvement in Africa in recent years has been underpinned by what I view as the real golden egg of China’s investment on the continent: China’s ‘Digital Silk Road’ initiative, as introduced by Chinese President Xi Jinping in 2015.

The Digital Silk Road initiative represents a holy grail vision that will deliver a connected digital ecosystem spanning from mobile and energy to healthcare, education, smart cities, and much more.

Whereas China’s Belt and Road initiative lays a physical bridge to the Middle East and Africa, the Digital Silk Road is the interconnected digital equivalent — representing an ‘Operating System’ of sorts that will create a valuable and defensible moat around China’s access to Africa’s tech infrastructure and data.

Part 2 — Establishing Moats 🚧

China’s investment in Africa over the past three decades has yielded technological, financial, and political moats, which will enable Chinese companies — and the Chinese state — to accelerate their influence at a pace that may be difficult to match.

1. Technology Moat 👨‍💻

For early Chinese corporate technology entrants on the continent such as Huawei and ZTE, the road is now paved for them to win subsequent network upgrade contracts and provide complementary services such as fintech, security, and IoT applications.

Partnerships forged in the early innings of infrastructure development have heavily influenced downstream research and development planning.

In Tanzania, for example, China International Telecommunication Construction Corporation, the Chinese company contracted to deploy the national ICT broadband backbone, constructed it to be “China’s Telecommunication Footprint” in Africa and compatible only with Huawei routers.

What does this mean for Huawei, the world’s second largest smartphone provider (generating approximately $100 billion per year in revenue), and other Chinese multinational companies in Africa?

Technology standards in Africa are now tightly aligned with the R&D roadmaps of these companies. They are well positioned to outcompete upstart players at both the platform layer and vertical application layer:

In my opinion, this is fairly analogous to Apple’s hardware and iOS platforms, which are so deeply ingrained amongst hundreds of millions consumers and businesses worldwide that it would be extremely daunting to compete.

Lack of Participation from the West

Furthermore, I was particularly surprised to find that despite the substantial impact Africa will have on global power dynamics in coming decades, western players and multinational institutions have continued to sit on the sidelines. For example, the World Bank provided just $1.4 billion per year on average for infrastructure projects in sub-Saharan Africa from 2016 to 2020, relative to China’s double-digit billions.

Demand is certainly there for western participation — despite comprising 17% of the global population, Africa currently possesses less than 1% of the world’s global data center capacity.

In fact, African countries have repeatedly sought international funding and expertise to develop their telecom and data infrastructure, but literally only China has repeatedly shown up. Tanzania, for example, has made several proposals to multinational agencies, including the World Bank, for financing for its National ICT broadband backbone (NICTBB) to unlock country-wide internet connectivity, but only China was willing to finance the project despite its criticality towards establishing foundational broadband connectivity that would link Tanzania to East Africa.

Thus, while African countries are wary of Chinese security risks, they consistently lack affordable and accessible alternatives, and ultimately have had to defer to Chinese companies like Huawei. As a Foreign Policy report headline puts it…

‘For Africa, Chinese-Built internet is better than no internet at all’.

Only recently, in 2022, has the United States begun to wake up to the criticality of infrastructural investment into Africa — the Biden Administration recently committed to invest $350 million into Africa’s digital transformation, and over $55 billion over the next few years across healthcare, climate, and trade.

Too little, too late?

2. Financial Moat 💰

Meanwhile, China has laid extensive groundwork for the adoption of its native yuan currency in Africa, positioning itself with a baked-in distribution network for Chinese products & technologies that leverage the yuan.

China was able to achieve substantial African yuan penetration in the 2010s by dangling trade incentives as a carrot for African countries to adopt the yuan as a reserve currency.

In 2014, for example, Zimbabwe added the yuan as a reserve currency in a bid to encourage trade with China — amounting to $600 million in 2014.

Today, dozens of African countries leverage the yuan as part of their settlement and reserve currencies, with institutions such as the Nigerian Central Bank announcing that it planned to shift more of its foreign reserves into yuan from dollars.

Now, China is Africa’s largest trade partner, at approximately $300 billion per year, as well as the continent’s largest creditor.

In addition, China has signed a memorandum of understanding on cooperation in financial supervision with seven African countries, including Egypt, South Africa and Nigeria, cementing long-term cooperation on bilateral development.

All of that to say, China now has a powerful foundation to both accelerate bilateral trade with Africa and promote the distribution of its new digital yuan (the ‘e-yuan’) across the continent.

3. Political Moat 📢

The third prong of China’s strategy for Africa has been the establishment of deep political ties via hands-on collaboration with African government leaders on issues such as corporate strategy, digitization, and social media controls.

Corporate Strategy Partnerships

African countries have, with growing frequency, partnered directly with Chinese companies to design economic strategy. For example, in October 2020, the Ivorian government collaborated with Huawei to formulate its national digital economy strategy, subsequently involving the Chinese company further in designing its broadband development strategy.

Training of African Officials

China has also extensively subsidized the training of African officials on a range of managerial topics, including a focus on media and information management for African media elites and government officials.

China’s hardline approach to internet governance has appealed to African governments that have sought to leverage digital media towards economic growth while maintaining strict controls over internet usage.

In Nigeria for instance, Lai Mohammed, Minister of Information, Culture, and Tourism, called for a strict social media policy and cited China’s censorship and regulation of social media as a model that could be adopted.

Between June 5, 2021 and January 13, 2022, Nigeria in fact outright banned Twitter, and reportedly consulted with China’s Cyberspace Administration (overseeing China’s cybersecurity initiatives) regarding the implementation of a firewall.

Part 3 — Implications of these Moats 🤔

Here’s where things get interesting — how might China benefit from the past 30 years of investment in Africa?

I’ll conjecture on four possible implications below.

1. Pathways to Consumer Data

First, via its hardware and software roots on the continent, China may have unique access to a treasure trove of consumer data, which could enable Chinese companies to outcompete others in tailoring their products and services for African consumers.

Just like TikTok (also owned by Chinese company ByteDance) has shaped internet habits and ways of thinking for Gen Z here in the US, China has the unique opportunity to gain influence and further shape social development — and political ideologies — for younger populations in Africa. This is particularly eye-opening given over 60% of the population in Africa is under the age of 25, and digitally native.

Meanwhile, many African countries may still lack airtight regulatory infrastructure required to protect consumer data. Several countries such as Kenya and Nigeria have made initial strides over the past few years, such as via Kenya's Data Protection Act (DPA) and Nigeria’s Data Protection Regulation 2019 (NDPR), both passed in 2019. Meanwhile in Ghana, regulators are in active discussions around data protection policies.

2. Influence Over Africa’s Data Infrastructure

With China’s datacenter investments now yielding conveniently located and affordable hotspots, African companies and governments are moving their software platforms from foreign servers to local data centers developed by Chinese companies.

For example, the Senegalese government indicated it would move all government data and digital platforms from international servers to the Diamniadio National Datacenter, located 30 KM outside of Dakar.

Constructed at a cost of 6 billion CFA francs (~$18.2 million), this center was funded through a Chinese loan and built by Huawei, which also supplied necessary equipment and technical assistance.

Huawei has also contracted with a range of African countries such as Kenya, South Africa, and Lesotho to develop data centers and provide 5G networks.

With these platform migrations, China may stand to gain further leverage over data connectivity and, more tactically, data pricing.

3. Distribution of Chinese Applications

Chinese companies like Huawei, Xiaomi, Oppo, and Transsion are in favorable positions to launch and distribute new applications natively integrated with their hardware and operating systems.

Over the past decade, there has been a particular explosion of payments platforms on the continent, powered by Chinese companies.

Applications such as Ant’s Alipay, for example, have already become widely adopted. And in 2013, WeChat, the multipurpose superapp owned by Tencent that is ubiquitous in China, began rolling out in Africa.

Opera, another Chinese company owned by Beijing Kunlun Tech, launched African payments startup OPay in 2018. OPay has since raised over $500M from investors like Softbank and Sequoia Capital China to scale across western Africa. And Transsion rolled out PalmPay in 2019 in Ghana as a pre-installed payments app on over 20 million smartphones.

The emergence of these Chinese applications has fueled a prevalence of superapps on the continent, equipping African consumers with a series of pre-built functionalities — within a singular app — for a variety of use cases.

This superapp distribution phenomenon in Africa has followed what’s called a “Push-Pull” strategy.

“Pushing”

On one hand, Chinese companies are “pushing” these applications onto the African consumer as a means to capture new market segments. Unlike in markets like the United States or Europe, where innovation has evolved from PC applications to mobile applications, in Africa, consumers are generally jumping straight to mobile — there is substantially less of a fragmented PC app landscape (and competition) to contend with.

“Pulling”

On the other hand, African consumers are naturally being “pulled” to superapps due to the technological limitations of their smartphones and economic limitations of their incomes.

For example, lower-end African smartphones — which comprise approximately 85% of phones shipped to Africa — generally have less storage capacity, limiting the number of applications that can be carried at once.

Furthermore, data costs are exponentially higher relative to average salaries in Africa than elsewhere in the world. In Africa, 1GB of data costs 7.1% of one’s daily salary on average, vs 1.9% in the Americas.

As a result, it is practically and economically far more efficient for Africans to adopt superapps rather than downloading various disjoint apps.

4. Trade Leverage

Perhaps most notably, China may gain substantial trade leverage in Africa with wide-scale adoption of the yuan.

In 2020, China was the first large economy to trial a digital currency, the e-yuan (e-CNY), with the eventual goal of replacing physical cash. The e-yuan is integrated with the Digital Currency Electronic Payment (DCEP) system and data processing network managed by the People’s Bank of China (PBOC).

Unlike Bitcoin, the e-yuan and the DCEP are under control of China’s monetary policy. And over the past few years, China has been aggressively distributing its e-yuan in Africa via currency swaps, lending agreements, and tech company subsidies.

In 2021, China’s Cross-Border Interbank Payment System (which offers clearing and settlement services for its participants in yuan) boasted 42 organizational participants in Africa across 19 African countries.

Via this medium, China’s central bank has executed over 73 billion yuan (~$11.5 billion USD) in currency swap agreements with central banks of South Africa, Morocco, Egypt and Nigeria.

And later that year, Huawei launched the Mate 40 smartphone, featuring a pre-installed e-yuan wallet harnessing the DCEP network.

Part 4 - A Window of Opportunity 🔎

As we discussed, China has established meaningful moats in Africa, which I believe will continue to accelerate China’s objectives to gain global political and technological leverage.

Is Africa’s tech ecosystem entirely in China’s hands? Not so fast. ✋

Countervailing Force: a Weakening Chinese Economy

China is now facing a raft of growing domestic economic challenges — the value of the yuan is at its lowest level in 16 years and GDP growth has recently shrunk by 1.4 % over the past two years, the largest decline since the 1960s and 70s when Mao Zedong was at China’s helm.

Domestically, local debt is rising and China’s population is aging dramatically; foreign investors are no longer singing the same tune about China that they were in the early 2000s.

What does this mean for China’s influence in Africa in the short term?

I believe the short term implication is that China will be more constrained in its commercial technology investments on the continent. While the Chinese state has solidified its foundational influence in Africa via its infrastructural investments, per its BRI objectives, there is less of an immediate economic pull for China to invest in African technology at the moment.

As a result, I expect China to pull back on capital injections into Africa over the next few years as it refocuses on addressing internal debt and labor issues.

Meanwhile, however, Africa remains in a period of rapid growth and will continue to require sizable foreign investment to subsidize this development.

Who will step in?

The door is open for participation from the west, as long as investors from these regions fundamentally understand local dynamics in Africa, as well as key risks.

Investing in Merchant Digitization & Financial Scalability

I believe there is tremendous window of opportunity over the next few years to invest at the merchant digitization & scalability layer in Africa — this area is ripe for development after the past 30 years of foundational Chinese investment in hardware and data connectivity, along with the past 10 years of Chinese investment in payment rails such as M-Pesa and OPay.

Furthermore, I expect an inflow of entrepreneurial talent (including founders educated abroad and those spinning out of Africa’s first wave of tech unicorns such as Flutterwave, Jumia, Chipper Cash, Andela) that will drive the next wave of highly legitimate technology companies in this area.

Now that African merchants are coming online with point of sale hardware and connected payment rails, there will be a critical need for development in areas such as identify verification, fraud prevention, lending & credit, and embedded finance.

Projecting forward, I believe investing in this segment will unlock much needed operational efficiency, transparency, and scalability for African businesses…subsequently leading to explosive e-commerce and financial growth for hundreds of millions of African consumers over the next decade or two.

I’ve compiled three “waves” of investment opportunity in Africa (and relevant company examples) below:

Wave 1 — Basic Financial Rails

Ripe Early-Stage Investment Timeframe: ~2010-2024 (it’s crowded)

• Merchant Payments & API Connectivity

  • Incumbents: Interswitch, M-Pesa

  • Startups: Flutterwave ($500M raised), OPay ($600M raised), Tala ($370M raised) TymeBank ($300M raised), Chipper Cash ($330M raised), Onafriq ($220M raised), Stitch ($52M raised), Mono ($17M raised), Nala ($10M raised)

Wave 2 — Merchant Digitization & Scalability

Ripe Early-Stage Investment Timeframe: ~2023-2028 (opportunities now)

• AI-Assisted Identity Verification and Fraud Mitigation

  • Examples: Smile Identity, iidentifii, Prembly, Dojah

• Merchant Lending & Credit

  • Examples: Lulalend, Evolve Credit, Moni, Kashat, Flapkap

• Stablecoins, Web3 Connectivity, Crypto Exchanges

  • Examples: Yellowcard, Jambo, Fonbnk,

• Merchant Acquisition

  • Examples: ThankUCash, Traction, Autogon AI

• Embedded Finance

  • Examples: Nomba, Anchor, Union54

Wave 3 — Consumer Participation & Growth

Ripe Early-Stage Investment Timeframe: ~2025-2035 (we’re still early)

• E-commerce & Delivery

  • Examples: Jumia, Jabu, YallaFelSekka, Rabbit

• Consumer Wealth Management (incl BNPL, Investing, Exchanges)

  • Examples: Kuda, Telda, Fairmoney, Djamo, Sympl

Ironically, thanks to China’s 30 year investment in connecting and digitizing Africa, paired with current economic circumstances that are forcing China to remain conservative in the short term, I believe there is an opportunity now — with relatively reduced Chinese competition — to participate at the “merchant digitization & scalability” layer in Africa, where I envision several new African unicorns to emerge over the next few years.

Key Risks

I will caveat, however, that there are several significant risks in participating at this merchant application layer.

First is the possibility for Chinese companies like Huawei, Xiaomi, Oppo, and Transsion to force bottoms-up adoption of vertical software for merchants above the operating systems baked into their hardware. We see a degree of this already from companies like OPay, however, they are moving relatively slowly at the moment and the app quality is not quite there — creating opportunities for faster moving, higher-quality upstarts.

Second is the potential for regional policymakers to ban applications misaligned with government interests. In recent years, Nigeria, Kenya, and other governments have forcibly shut down lending applications they deemed as predatory.

In order to mitigate these risks, winners in this space must be flexible and compatible with a variety of foundational hardware and software in order to prevent fatal outcomes in a scenario in which they are locked out by a particular operating system.

Furthermore, winners must partner early — and maintain close feedback loops with — the corporate and policy stakeholders that hold the power to wipe them out with a flip of a switch. A general trend I’ve seen amongst the newer wave of fast-growing fintechs in Africa is their prioritization of early partnerships with regional banking stakeholders, which provide licensing and distribution to their merchant-base (within the constraints of their economic and political interests, of course).

That’s all for now, thanks for reading. I appreciate any feedback you have as I dig into next week’s deep dive topic!

Cheers,

Kevin

Disclaimer: All information contained on Emerging Market VC is not intended as, and shall not be understood or construed as, financial advice. All views and ideas expressed are my own.

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